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Committees at the Bank for International Settlement (BIS)

Risk Management Guidelines for Derivatives

Document Overview

The 1994 BIS Risk Management Guidelines emphasise the importance of determining at the highest level the policy and scope of a firmís involvement in and use of financial instruments; oversight by boards of directors and senior managers; a risk management process that involves continuous measuring, monitoring and controlling of all risks (especially market and credit); accurate and reliable management information with comprehensive limits; frequent management reporting; sound control and operational systems; and thorough audit and control procedures. It also stresses the importance of the human factor in risk management: professionals involved must have the necessary skills and experience, and the firm should not touch any instrument until senior managers are fully satisfied that all relevant personnel understand and can manage the risks involved. The bottom line of this report is an independent risk management function.

Preface

I. Introduction and basic principles

II. Oversight of the risk management process

  • Board of directors
  • Senior management
  • Independent risk management functions

III. The risk management process

  • Risk measurement
  • Limiting risks
  • Reporting
  • Management evaluation and review

IV. Internal controls and audits

V. Sound risk management practices for each type of risk

  • Credit risk (including settlement risk)
  • Market risk
  • Liquidity risk
  • Operations risk
  • Legal risk

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